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Firms that use the strategy as a tool to attract or retain staff during the skill shortage have been cautioned to meet the administrative commitments that come with it.
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Businesses must be aware of employee share scheme obligations
17 July 2023
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Businesses must not overlook the obligations that come with employee share schemes (ESS) as requirements to staff and the ATO need to be met.
HLB Mann Judd tax consulting partner Josh Chye said ESS administrative measures must not be forgotten despite the tight labour market.
“An often overlooked administrative aspect of setting up ESS arrangements, is being aware and complying with the reporting requirements to both your employees and the ATO,” said Mr Chye.
Mr Chye said the two key requirements businesses must ensure they abide by are providing an ESS statement to the employee, which helps them complete their tax return, and submitting the ESS annual report to the ATO.
The employee statement is required to be provided to the employee by 14 July with information in it to include:
- The discount for ESS interests acquired under each type of taxed-upfront scheme
- The discount for ESS interests acquired under a tax-deferred scheme if a taxing point happened during the financial year
- The discount for shares and rights acquired before 1 July 2019 if a cessation time occurred during the financial year
- The total TFN amount withheld from discounts during the financial year
Mr Chye said if the firm’s employee is eligible for start-up concessions, the business must provide them with the following information about ESS interests acquired during the income year:
- The number of ESS interests acquired
- The market value of ESS interests acquired
- The acquisition price of ESS interests that were shares
- The exercise price of ESS interests that were rights
- The acquisition date of the ESS interests
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HLB Mann Judd said businesses also need to be across the details required to be provided to the ATO in its ESS annual report, which is due 14 August.
The ATO said the information businesses must provide for general ESS schemes included the following details for each employee participating in an ESS and for each ESS that the employee is participating in, which include:
- Plan identifier – a reference that makes a plan unique within all plans offered by the business
- Acquisition date – the date the ESS interests were acquired
- Plan date – the date a taxing point happens to an ESS interest, for a taxed-upfront scheme, this would be the acquisition date, for a tax-deferred scheme, this would be the deferred taxing point
- TFN amounts withheld from discounts on ESS interests if a taxing point arose during the financial year
The ATO also reminded firms that it will only accept ESS annual report lodgments electronically.
The increased awareness regarding ESS obligations comes after several businesses looked to the scheme as a way to entice and retain staff during the skills shortage, with the director at DMCA Advisory, Tania Tonkin, telling Accountants Daily last year that businesses should look at the method.
“Having a scheme for employee buy-in makes for a more equitable environment – one where both workers, the C-suite, and all shareholders have aligned interests,” said Ms Tonkin.
“It is possible if you keep it simple and don’t make it too complicated. It’s a really good way to tie people into the business and keep them on board.”
“Employees receive a benefit from receiving dividends on top of their usual salary as profitability targets are met. The value of their shares is then a real investment in the business which increases in value as the business grows.”
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